Audit Committee Minutes of December 7, 2018, submitted for review on February 4, 2019, and proposed for approval on March 1, 2019.

present. Also in attendance were Glenn Fernandes, Director, Internal Audit; Dan Chase, Internal Audit

Manager; Olga Darlington, Partner, Moss Adams; Tyler Reparuk, Senior Manager, Moss Adams; Rudy

Caluza, Director, Accounting and Financial Reporting; Bruce Klouzal, Senior IT Auditor; Scott Watson,

Point B consultant; Mike Tasker, Aviation Facilities and Infrastructure; Stuart Mathews, Director, Aviation

Maintenance; Dan Thomas, Chief Financial Officer; Aaron Pritchard, Commission Issues and Policy

Manager; and Paul J. White, Commission Clerk.

Call to Order:

The committee special meeting was called to order at 1:05 p.m. by Commissioner Felleman.

Moss Adams’ services include an external audit on financial statements for the port’s Enterprise Fund and

the Warehousemen’s Pension Trust Fund as part of the port’s Comprehensive Annual Financial Report

(CAFR). These services include the following audit and reporting activities conducted in accordance with

Government Accounting Standards:

 Internal controls and compliance over financial reporting.

 Compliance related to major federal award programs (federal grants).

 Receipts, expenditures, and controls for the Passenger Facility Charge program at Seattle-Tacoma

International Airport.

 Net revenues available for revenue bond debt service.

 Financial procedures relating to environmental remediation at Terminal 91.

Committee members asked for more information pertaining to risk assessment methodology. Areas of audit

emphasis, based on assessment of risk, include the following:

 Internal control cycles

 Pension and other post-employment benefits liabilities

 Environmental remediation liability

 Investments

 Northwest Seaport Alliance joint venture

 Uniform grant guidance (“single audit”)

Committee members asked about the scope of the audit’s focus on the Northwest Seaport Alliance, which

is separately audited. They also requested clarification about the difference between the focus of an

external and internal auditor.

Proposed 2019 Internal Audit Plan:

The proposed work plan for the Internal Audit Department for 2019 was presented. Ratings for risk

assessment and revenue or capital budget assessment for each item were provided, and recent revenue

recoveries related to Internal Audit activities were summarized. Audits planned in 2019 include the

following:

Limited Contract Compliance

 Sixt Rent-a-Car LLC

 Enterprise Rent-a-Car

 Anton Airfoods

Capital

 Airport Baggage Optimization

 Airport Noise Insulation Programs

 Airport Concourse D Hardstand

 Shilshole Bay Marina Tenant Service Building

Information Technology

 Security of Personally Identifiable Information

 HIPAA (Health Insurance Portability and Accountability Act) Compliance

 Payment Card Industry Quality Security Assessor

 Closed Network System Security

 Inventory and Control of Hardware Assets (information technology)

The 2019 Internal Audit work plan was approved as presented.

Operational Audit – Sea-Tac Utilities:

The audit period covered January 1, 2017, through October 31, 2018. The audit objective was assessment

of the accuracy, completeness, and timeliness of utility billing and supporting processes. The utility was

established in 2001 to provide water, natural gas, electricity, garbage, and wastewater service to Seattle-

Tacoma International Airport. Findings focused on technical or oversight errors resulting in unbilled utility

fees. A management response was provided.

insurance coverage required by the port’s risk management group is $3.95 per $1,000, which is in line with

general liability insurance rates in the Seattle market. The contract with Clark stipulates port reimbursement

for insurance coverage at $7.49 per $1,000. Use of the lower general liability insurance rate would have

saved the port approximately $2.8 million. Internal Audit recommends specifying a maximum insurance

coverage for port reimbursement, ensuring review of contract language by the risk management group, and

avoiding audit limitations in future contracts, as auditing facilitates transparency and enables the port to

ensure contract compliance.

Second, payroll-related costs for the guaranteed maximum price (GMP) for the International Arrivals Facility

represent use of a labor multiplier rate that increased from 35.7 percent in the original 2015 contract with

Clark/SOM to 88.7 percent in the GMP contract. The labor multiplier rate in the Seattle region is typically

between 30 percent and 45 percent and includes fringe benefits, burdens, bonuses, deferred

Committee members commented on the not-subject-to-audit clause applied to some of the negotiated

contractual elements. The need for the port to be able to validate future compliance and determine

reasonableness of contract requirements was stressed.

Third, although instructed to issue subcontracts with a not-to-exceed method, and the presence of “not-to-

exceed” language in seven of the main subcontracts reviewed, Clark is managing these subcontracts on a

lump-sum basis. This means that subcontractors are compensated for 100 percent of the contract value,

regardless of actual costs. In not-to-exceed contract management, savings, decreased costs, or process

efficiencies would inure to the benefit of the port rather than the subcontractor. Lump-sum contracts do not

provide the ability to review actual costs in an open-book environment. Internal Audit recommends that

Adjournment: